Answer all the given questions. Section A to be answered in around 500 words each and Section B to be answered in around 300 words.
Part A:
Question1: What is meant by the term autocorrelation? What are its major consequences? How do you detect it?
Describe one of the techniques for eliminating the problem of autocorrelation.
Question 2:
a) Differentiate between structural form and reduced form of a simultaneous equation system.
b) Describe the concept of identification in a simultaneous equation system.
c) Describe the ‘rank’ and ‘order’ conditions for identification of an equation in a simultaneous equation system.
Part B:
Question 3: What is meant by the term heteroscedasticity? Describe one of the methods you would follow to eliminate the problem of heteroscedasticity.
Question 4: What is the requirement for using a dummy variable in a regression model? Differentiate between intercept dummy and slope dummy with an illustration. What is dummy variable trap?
Question 5: What are the various uses of Chow test? Write down the steps you would follow in applying the Chow test.
Question 6: Prove that OLS estimators are best linear unbiased estimators (BLUE).
Question 7: Write short notes on the given:
a) Simultaneity bias
b) Multi-collinearity problem
c) Adjusted-R2